Good afternoon, and welcome to the Fourth Quarter and Full Year 2017 Earnings Discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available from PennyMac Mortgage Investment Trust's website at www.pennymac-reit.com. .

Before we begin, please take a few moments to read the disclaimer on Slide 2 of the presentation. Thank you. .

Now I'd like to turn the discussion over to Stan Kurland, PMT's Executive Chairman. .

Thank you, Chris. Let's begin with Slide 3. For the fourth quarter, PMT reported net income attributable to common shareholders of $34.6 million or $0.50 per diluted share, representing an annualized return on average common equity of 11%. PMT paid a dividend of $0.47 per share for the quarter.

Book value per common share increased to $20.13 at quarter-end, up from $19.74 at September 30. Fourth quarter results include a benefit of $13 million or $0.18 per share resulting from a reduction of deferred tax liability in PMT's taxable REIT subsidiary following the passage of the Tax Cuts and Jobs Act.

PMT's results also reflect strong contributions from CRT investments and Correspondent Production, partially offset by distressed loan investment losses. .

Credit Sensitive Strategies, which contributed $39.3 million in pretax income; Interest Rate Sensitive Strategies, which contributed $3.2 million in pretax income; Correspondent Production, which contributed $14.1 million in pretax income; and Corporate with a pretax loss of $10.6 million. .

PMT repurchased approximately $5.2 million of its common shares at a cost of $82.6 million during the most recent purchase window. In December, the Board of Trustees approved a $100 million increase to the share repurchase program, which now stands at $300 million. .

During the fourth quarter, we continued to grow our investments in CRT and mortgage servicing rights resulting from PMT's Correspondent Production activities. Conventional Correspondent loan production totaled $5.9 billion in unpaid principal balance, down 10% from the prior quarter.

CRT-eligible deliveries totaled $4.8 billion in UPB, up from $4.1 billion last quarter, which will result in approximately $168 million of new CRT investments once the aggregation period is complete. We also added $83 million in new MSR investments resulting from our Correspondent activities. .

Turning to Slide 4, let's continue our review of the highlights. We continued to reduce equity allocated to distressed mortgage loans, completing the previously announced sale of $287 million in UPB of nonperforming and performing loans from the distressed portfolio.

After quarter-end, we agreed to sell another portfolio of nonperforming and performing loans, totaling $381 million in UPB. With this pending sale, PMT's equity allocated to distressed mortgage loans is expected to reduce from 22% at December 31, 2017, to approximately 15% on a pro forma basis. .

Now let's turn to Slide 5 and discuss our perspective on the current mortgage market. Mortgage rates increased steadily throughout the fourth quarter, rising 16 basis points to 3.99% at quarter-end.

Rates have continued to rise since the end of last year, with the 30-year fixed rate mortgage reaching 4.22% last week, its highest level in nearly a year. .

Refinance activity, as measured by the average of the MBA refinance application index, declined 14% from the prior quarter in response to rising rates. .

Home sales showed renewed strength in the fourth quarter after slowing from robust levels during 2017 spring and summer buying season.

Macroeconomic fundamentals underlying the housing market remain positive, and mortgage market origination estimates are forecasting multiyear growth in purchase money mortgages, driven by continued strong consumer demand for homes. .

Credit performance of residential mortgages generally continues to be strong. According to Black Knight Financial Services, the total U.S. loan delinquency rate for loans 30 days or more past due was 4.7% at the end of December versus 4.4% at the end of September.

We believe the increase in delinquencies is attributable to recently experienced natural disasters, primarily Hurricanes Harvey and Irma, and typical seasonal factors in the fourth quarter. We expect delinquencies to decrease from these levels in the first half of the year. .

Now let's turn to Slide 6 to discuss the implications of the Tax Cuts and Jobs Act. We expect the new tax law to provide a stimulus to the economy and help drive continued economic growth. Historically, a strong economy has supported home price appreciation, driven by a robust demand for homes and elevated home sales activity.

Many households should see an increase in their disposable income, which is supportive of increased homeownership levels longer term.

However, there may be a mixed impact on home prices in the near term, as a reduction in the maximum mortgage interest deduction and the cap on state and local tax deductions could have a negative impact on high-cost areas, such as California and the Northeastern States. .

Looking at the mortgage industry impact, the reduction in the federal corporate income tax rate to 21% should significantly improve the after-tax profitability for PMT's taxable REIT subsidiary.

While the lower mortgage interest deduction cap may affect the jumbo mortgage, it does not affect the agency market for government and conventional conforming loans, which make up 80% of all U.S. mortgage loan production and essentially 100% of PennyMac's production. .

Improved after-tax profitability for the industry may affect competition and production margins over time, but the impact at this point is uncertain. We also believe that the new tax law is a positive for our synergistic partnership with PMT. The new 20% deduction for REIT dividends increases the attractiveness of PMT's stock. .

Now let's turn to Slide 7 to review PMT's share repurchase program. Earlier, I discussed our recent share repurchase activity and the upsize to the program authorized by our board in December.

Since inception of the program, PMT has repurchased a total of 14.7 million common shares at a cost of $216 million, which has resulted in an effective purchase discount to book value of $80 million.

The repurchase program has allowed PMT to acquire its common shares at an attractive discount to book value, reduce common shares outstanding by approximately 19% and enhance its equity returns, which we believe aids PMT's long-term success. .

Now let's turn to Slide 8 to discuss PMT's continuing transition to Correspondent-generated investments such as CRT and MSRs.

The chart on Slide 8 shows the ongoing progress we have made towards transforming PMT's balance sheet, reducing the equity allocated to distressed mortgage loans and redeploying capital to MSRs and GSE credit risk transfer assets generated from PMT's own Correspondent Production.

As of December 31, approximately 22% of PMT's equity was allocated to distressed loan investments compared with 58% 2 years ago, while CRT, MSR and ESS investments now make up 66% of PMT's equity allocation.

Taking into account the pending bulk sale of nonperforming and performing loans, equity allocated to distressed loans is expected to be approximately 15%. .

Now let's turn to Slide 9 and discuss the run rate quarterly income potential for PMT's strategies. PMT's investment strategies are expected to deliver a run rate diluted EPS of $0.52 per quarter, which would result in an annualized return on common equity of approximately 11%. The run rate potential reflects our expectations for returns over 2018.

It incorporates a reduced provision for income tax expense resulting from the new federal tax law. Our income potential is driven by CRT in addition to MSRs as part of our Interest Rates Sensitive Strategies. We expect to continue deploying proceeds from the distressed loan liquidations and preferred equity raises into these investments. .

Correspondent segment results are expected to further benefit from improvements we have made to loan acquisition strategies and opportunities to optimize our secondary market execution and financing arrangements. We expect the distressed portfolio to wind down and its impact on our income potential to be de minimis. .

Our continued objective at PMT is to distribute a dividend consistent with earnings per share over time.

In our evaluation of earnings potential for PMT and the appropriate dividend, we also consider the income required to be distributed for the year to maintain our tax-advantaged status as a REIT, which effectively forms a floor for dividend payments. .

This concludes my overview of PMT's fourth quarter performance. Now I'd like to turn the discussion over to David Spector, PMT's President and Chief Executive Officer, who will review our mortgage investment activities. .

Thank you, Stan. Let's turn next to Slide 11 for a look at our Correspondent Production highlights. Correspondent acquisitions by PMT in the fourth quarter totaled $15.4 billion in UPB, down 12% from the third quarter and down 23% year-over-year.

Conventional conforming acquisitions, for which PennyMac Financial performed fulfillment services for PMT, totaled $5.9 billion in UPB in the fourth quarter, down 10% from the prior quarter and 21% from the fourth quarter of 2016. Total lock volume was $15.9 billion in UPB, down 9% from the prior quarter and 17% year-over-year.

The decline in acquisition and lock volumes resulted from increased competition in the conventional conforming market and seasonal factors. We remain disciplined in our pricing and increased pretax income per interest rate lock commitment to 24 basis points from 13 basis points in the prior quarter.

We also grew the volume of CRT deliveries from our conventional conforming acquisitions by 17% from the prior quarter, increasing capital deployed into attractive CRT investments, which I will discuss in greater detail on the next slide.

Our seller relationships continued to grow and totaled 613 at the end of the fourth quarter versus 604 at the end of the previous quarter. The purchase money percentage of our Correspondent acquisition volume was 76% in the fourth quarter, which positions us well for the forecasted growth in purchase market origination volumes. .

Looking at January production volumes, total Correspondent loan acquisitions were $4.8 billion in UPB, while interest rate lock commitments totaled $4.4 billion in UPB. .

Now let's turn to Slide 12 and discuss PMT's investment in GSE credit risk transfer. At the end of the fourth quarter, PMT's CRT investment totaled $589 million, which after debt financing resulted in an equity allocation of $288 million.

During the quarter, we completed $4.8 billion in UPB of CRT deliveries to Fannie Mae, which resulted in commitments to fund approximately $168 million of new CRT investments once the aggregation period is complete, $40 million of this had been invested at quarter-end.

Excluding the impact of fair value changes, the income contribution from CRT was $15.6 million, an increase from $12.7 million in the prior quarter, and the return on average CRT equity was 19%.

The fair value of PMT's CRT investments benefited from credit spread tightening for such securities, consistent with spread tightening across many asset classes during the quarter. .

As a result of the recent natural disasters, 60-plus days delinquencies increased, primarily due to disaster-impacted loans in forbearance status.

PMT is in a unique position as both owner of the credit risk and the MSR, which affords us the ability through our servicer to engage with delinquent borrowers and offer assistance to help return their loan to performing status. Successful loss mitigation strategies helped to avoid losses on the CRT investments. .

During the fourth quarter, lifetime losses on our CRT investments increased by $0.5 million to $1.5 million on an outstanding unpaid principal balance of $26.8 billion, reflecting portfolio seasoning and in line with expectations. .

Now let's turn to Slide 13 and discuss our MSR and ESS investments. PMT's organic MSR investments resulting from its own Correspondent Production activity increased to $845 million at quarter-end, up from $790 million at September 30.

To help facilitate the continued growth of our MSR investments, we formed PMT Issuer Trust, FMSR, putting in place a structure to optimize the financing of our Fannie Mae MSRs.

It also provides the ability to issue term notes to diversify our financing to include institutional investors while also providing term financing that more closely matches the duration of the MSR asset. .

PMT's ESS investments resulting from bulk, mini-bulk and flow MSR acquisitions by PFSI decreased to $237 million at December 31 from $249 million at September 30. .

Now let's turn to Slide 14 and discuss our progress on reducing PMT's distressed loan investments through liquidations and sales.

During the fourth quarter, we made significant progress executing resolution activities, which resulted in the ongoing reduction to the distressed loan portfolio and transition of PMT's capital into Correspondent-generated opportunities in CRT and MSRs.

As part of these activities, we completed the previously announced sale of $287 million in UPB of nonperforming and performing loans. At quarter-end, total performing loans in our distressed portfolio stood at $519 million in UPB, down 22% from $668 million at the end of the prior quarter and down 37% from $819 million year ago.

The nonperforming loan portfolio ended the quarter at $525 million in UPB, a 49% decline from the same period a year ago and down from $717 million in UPB at September 30, 2017, driven by the recently completed bulk loan sale. .

The chart on the bottom left portion of the slide shows the components of our performing portfolio balance change in the end of the prior quarter. The performing loan portfolio decreases with payoffs, recidivism of loans back to nonperforming status and bulk loan sales, and increases as nonperforming loans transition into performing status.

Loan modifications are the primary strategy for bringing nonperforming loans back to performing status, which, once seasoned, can be sold into well-established markets for these loans. As Stan mentioned earlier, PMT agreed to sell $381 million in UPB, or approximately 36% of the distressed loan portfolio, as of December 31.

The loans in this sale are comprised of approximately 50% nonperforming and 50% performing loans. .

Now I'd like to turn the discussion over to Andy Chang, PMT's Chief Financial Officer, to review the fourth quarter's results. .

Thank you, David. Let's turn to Slide 16 and discuss the fourth quarter's income and return contributions by strategy. PMT's investments in the fourth quarter generated an annualized return on common equity of 10.8%, net of expenses and overhead. This includes the impact of the new tax law, as Stan mentioned earlier. .

In total, Credit Sensitive Strategies contributed $39.3 million to pretax income and a 19.8% annualized return on equity during the fourth quarter. Within the segment, distressed loan investments posted a loss of $17.4 million in the quarter.

Distressed loan investments continued to underperform, primarily driven by valuation losses on nonperforming loans, which I will discuss in more detail on the next slide. .

CRT investments contributed pretax income of $56.3 million. As David mentioned, the fair value of these investments benefited this quarter from tightening of credit spreads for such securities.

Interest Rate Sensitive Strategies, which include the performance of our MSRs, excess servicing spread and agency and nonagency senior MBS positions and related interest rate hedges, together contributed $3.2 million of pretax income or a 1.9% annualized return on equity in the fourth quarter. .

Servicing income on MSR investments increased as a result of a growing portfolio, partially offset by market-driven valuation changes. Valuations of MSRs and ESS were adversely impacted by yield curve flattening. ESS also incurred valuation losses net of recapture income as a result of higher-than-expected prepayment activity during the quarter. .

Agency MBS returns were adversely impacted by market-driven valuation changes from higher mortgage rates.

While we show the income contribution for each of these Interest Rate Sensitive Strategies separately, they are managed in aggregate as, typically, the interest rate sensitivity of MSRs and ESS is inversely correlated to MBS positions in many of our interest rate hedges. .

Correspondent Production contributed $14.1 million in the fourth quarter or an annualized return on equity of 71%, up from 36% in the prior quarter. The contributions from PMT's investment strategies were partially offset by a $10.6 million reduction due to Corporate activities and $5.1 million of income tax expense. .

Now let's turn to Slide 17 and discuss the performance of PMT's distressed loan portfolio in greater detail. Losses on the distressed mortgage loan portfolio were $8.2 million versus gains of $3.3 million in the prior quarter.

Fair value gains on performing loans in the distressed portfolio were $0.6 million, while fair value losses on nonperforming loans were $11.7 million.

Losses in connection with the bulk sale of nonperforming and performing loans were approximately $4 million, including sale expenses and the adverse valuation impact on the carrying value of the remaining nonperforming loans.

The valuation of the nonperforming loan portfolio was also adversely impacted by higher recidivism of previously performing loans as well as an increase in costs related to the maintenance of PMT's lien interest in the loans.

Lower valuation gains on the performing loan portfolio compared to the prior quarter were driven by a reduced impact of market improvements and lower reperformance during the quarter. .

Gross cash proceeds from the liquidation of mortgage loans and REO before debt repayment and payment of related expenses totaled $48 million.

The bulk sale of nonperforming and performing loans during the fourth quarter generated $210 million in gross cash proceeds and approximately $87 million in net cash proceeds after debt repayment and related expenses. .

With respect to the distressed loans and REO liquidated during the quarter, $6.2 million in net valuation losses were recognized over the holding period of the assets, while $1.5 million of gains were realized at liquidation. .

Now let's turn to Slide 18 and discuss certain changes to the accounting of PMT's mortgage servicing rights that we are making in 2018. MSRs are a significant portion of PMT's assets and their fair value generally increases when interest rates rise and decreases when interest rates fall.

Through December 31, 2017, we accounted for a portion of our originated MSRs at the lower of amortized cost or fair value when the underlying note rate on the loans was less than or equal to 4.5%. MSRs related to loans with note rates above 4.5% and all purchased MSRs were accounted for at fair value. .

Beginning January 1, 2018, all of PMT's MSRs will be carried at fair value. This will result in a single accounting treatment for all MSRs, the carrying value of our MSRs will be consistent with how MSRs are valued under our financing arrangements and our hedging activities will be simplified. .

PMT accounted for $63.9 billion in UPB of its MSRs at lower of amortized cost or fair value at December 31, 2017. The fair value of these MSRs was $19.7 million in excess of their carrying value on our balance sheet. .

And with that, I'll turn the turn the discussion back over to Stan for some closing remarks. .

Thank you, Andy. PMT's fourth quarter performance represents the further affirmation of our strategic focus on Correspondent Production and the investments it creates. The Correspondent business generates attractive returns on its own and also produces unique long-term investments, such as CRT and MSRs.

We also are working on enhancing returns by optimizing our financing structures, such as the one we have implemented for Fannie Mae MSRs. We believe the income potential of these strategies taken together should produce attractive returns on equity, as reflected in our run rate income potential.

The continued shift to these newer strategies is reflected in the expected improvement in the run rate income potential, which is further enhanced by lower provisions for corporate income taxes. .

Lastly, we encourage investors with any questions to reach out to our Investor Relations team by e-mail or phone. Thank you. .

This concludes PennyMac Mortgage Investment Trust fourth quarter earnings discussion. For any questions, please visit our website at www.pennymac-reit.com or call our Investor Relations department at (818) 224-7028. Thank you..